American Empire of Debt - The Great Bust Ahead
The Great Bust Ahead
The Greatest Depression in American History is just several short
years away. It will be much worse than the 1930s, beginning perhaps as early
as 2009-2010,and last up to thirteen years.
On the Horizon
In the next few months, a financial crisis will arise somewhere in the world
which will jolt the American economy and trigger a swift and precipitous
decline in the value of the dollar. This is not speculation; it will happen and
there is nothing that the Bush administration can do to stop it.
All of the traditional supports for the dollar have been removed by a shrinking economy, a massive $800 billion account deficit, dramatic increases in the money supply, and the reckless manipulation of interest rates.
Now, the noose is tightening. Our foreign trading partners can see that we are bobbing in an ocean of red ink and are refusing to buy back our debt in the form of US Treasuries. This is a death sentence for the dollar. It means that in a matter of months the once-mighty greenback will crash through the floor and free-fall through open space.
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The Historical Pattern
The Great Bust Ahead is based on a simple common sense recognition that the long-term trend of the economy must always be determined by consumer spending. Why? Simply because we know consumer spending accounts for about 60% to 70% of the economy as expressed by the GDP (Gross Domestic Product), and more like 90% when indirect spending of our income as taxes by the government(s) is included.See these Videos ...
History shows that the economy always declines when the number of big-spending 45 to 54 year-olds in the population declines, a full 11 to 20 years before they retire. This happened rapidly in the early 1930s, slowly thank goodness in the 1970s, and will happen again from 2013 to 2025, rapidly, relentlessly and catastrophically.
This must not be confused with Baby Boomers retiring. They retire 11-20 years
after their peak spending years end. While their retirement independently creates major unprecedented problems with social security and Medicare, the
inevitable depression they cause by stopping their big-spending, happens first.
If you accept their inevitable, later demographic impact on social security and
Medicare, you must, for the same underlying reasons, accept their earlier
bigger impact on the economy, even though tragically virtually no one is talking about it - yet.
Focusing on who does the “big spending” within the population, the economic past, stretching back for about a century, is almost effortlessly accounted for with stunning accuracy.
Also revealed in stark Technicolor for anyone who wants to see, is the unavoidable coming economic abyss that we are now headed for, and most of the world along with us. It’s nobody’s fault. It’s simply the inevitable result of our demographics. It cannot be fixed or wished away. The federal and state governments cannot solve it. It’s just as unstoppable as a tidal wave. We just have to accept the reality that it is coming, and plan for it as best we can.
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*The Debt Trap
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*Hymn Against Empire
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American National Debt Graphs
Our great American economy is an ocean whose total depth is made up primarily of the combined spending of all the various age groups. The heaving waves on the surface of this deep ocean are always the big-spending 45 to 54 year old group. These waves produce the peaks and troughs of the economy - the long-term booms and busts. They can and have both raised and sunk ships.
We will soon have to man the lifeboats as the greatest demographic wave in American history crashes down with a thunderous roar! Like the great Titanic, there will not be enough time nor enough lifeboats on board, and only very limited rescue available.
The Current National Debt
Military power comes from the wallet. A country is not rich because it has a large defence force - but it may have a large defence force because it is rich. There is a growing concern about what the increasing US national debt will do to the nation's ability to influence world affairs.
The current size of the national debt is almost US$7 trillion (that is seven million, million dollars). This is a sum of money beyond the understanding of most people. For example, if a person spent a US$1 million a day for every day since Jesus was born, then it would take until about the year 2737 to spend just the first trillion dollars. The US National Debt is about seven times that amount.
The national debt started in 1791 and it was US$75 million. In the 1830s, the national debt went down to its lowest ever level: US$37,513.
Generally speaking the national debt has gone down in times of peace and gone up in times of war. The national debt increased by 21 times in World War I and six times in World War II.The True Size of the Problem
The longest sustained period of debt reduction occurred after the Civil War (1861-65) to 1893, when the US government ran a budget surplus every year and cut the debt to about a third of initial value.
This resulted in more money in circulation for private expenditure and so contributed to the booming US economy. By the beginning of the 20th century all this growth meant that the US had become one of the world's main economies.
Only $20 per citizen was spent on the federal government in 1800, by 2003 that had grown to $7,800. The growth in state and local government has grown by twice the rate of GDP since WWII and there are now 6.5 state and local government employees per 100 citizens compared to 2.3 per 100 in 1946.
Now 21.5 million people work for governments at all levels compared to 4.5 million back in 1940.
If unfunded liabilities are included, *the federal government owes $43 trillion. Households and businesses have also joined the borrowing party. Total debt per family of four is $500,000, and increasing at an accelerating pace.Also See ...
*The government's $43 trillion secret
The USA’s national debt is increasing by $2.43 billion everyday. People expect the state debt to top the ten trillion dollar mark in the next few years.
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*USA's National Debt Clock
The combined effects of the trade, current account and budget deficits will eventually destroy the dollar, a currency that has lost an astounding 90 percent of its value versus gold, and 70 percent versus the cost of living.
Three likely scenarios of what will happen when the dollar implodes.
The first, similar to the 1930’s, has gold being confiscated and the emergence of a bigger, more authoritarian government.
The second has virtually all markets collapsing and a new generation of politicians demanding a return to gold.
In the third scenario, as currency markets around the world collapse, the market chooses gold and "The Age of Paper" ends with a whimper rather than a bang.
American Debt History
The Depression of the 1930s was another turning point because the national debt started a dramatic increase even though there was no war. The US government was spending its way out of the Depression, such as through the creation of roads and other public works. Then the US ran into all the financial problems of World War II.
In the aftermath of the war, the US embarked upon its biggest period of economic growth – as did most of the rest of the world as it recovered. For two years during the eight years of the Eisenhower government in the 1950s, the US government even ran at a surplus.
From the 1960s, US governments started to fall back into increasing the national debt. For example, the Vietnam War was politically unpopular and could not be financed from traditional methods (compulsory saving and increased taxation) and so the government borrowed to pay for it.
The Reagan Administration (1982-88) had the largest military build-up in peacetime US history and this added to the national debt. The late President Reagan left office with a budget deficit larger than the combined total of his 39 predecessors.
By the time of the Clinton Administration (1992-2000), the Cold War was over and the President was reluctant to get the US involved in further wars. Additionally, the US economy was booming again. In the late 1990s, Clinton was speculating on what could be done about the first lot of budget surpluses since the Eisenhower Administration. In June 1999, Clinton said that if the current rate of annual government budget surpluses could be maintained, then the entire national debt could be paid off by 2015.
Reducing the level of annual government budget deficits was one of the Clinton Administration’s greatest achievements. It ran four consecutive budget surpluses. In May 2000 Clinton announced the largest paydown on the national debt in US history. The national debt was US$2.4 trillion lower than it was projected to be when he entered office in 1992. He said that the US could “pay off the entire national debt by 2013 for the first time since Andrew Jackson was president”.
But that optimism has now gone. President George W Bush has increased the annual government deficits by both introducing tax cuts and raising defence expenditure. The War on Terrorism and the cost of rebuilding Iraq are adding to the national debt. The US government is now back with record government budget deficits.
The Big Bang
The central banks of China, Japan, and other countries are deliberately buying dollars in order to keep their currencies from rising against the greenback. But they won't keep doing this indefinitely. The U.S. is borrowing more than $600 billion a year from the rest of the world, and it can't go on much longer.
Sometime within a decade, and most likely in the next couple of years, foreign investors will see that a steep decline of the dollar is unavoidable and will begin to unload them and U.S. Treasury securities. As with any bubble, it will be better if this one bursts sooner rather than later, when it would be even bigger. But adjustment and pain will still occur, including higher interest rates and consequently slower growth.
Slower growth will also mean larger federal budget deficits. And one event that will certainly slow growth and increase federal government borrowing well beyond current projections is the bursting of the housing bubble. Housing prices have seen an unprecedented run-up since 1995 of more than 35 percentage points above the rate of inflation. That has created more than $3 trillion in paper wealth that –- just like the illusory wealth of the stock-market bubble -- is programmed to disappear. This, too, is almost certain to happen in the next few years.
The economic impact will be at least equivalent to that of equities popping in 2000-02, which caused the last recession. Another slump is, therefore, likely in the near future, and with it a further ballooning of the federal budget deficit, as tax revenues fall and automatic countercyclical spending rises.
American Empire Not Affordable
CHINA RISING. The combination of unsustainable public debt and foreign debt is a deadly and explosive mix by itself. Rising real interest rates and a looming housing bubble bursting make it all the more dangerous. Financial markets will exert the necessary discipline if politicians refuse to do so, but either way the U.S. can't afford even the $486 billion a year that it's currently spending annually on the military and homeland security.
And even these spending levels are a lot less than would be necessary to maintain America's power in the world. Over the next decade or so, the Chinese economy will actually surpass the U.S. in size. America has 100,000 troops in East Asia. If the U.S. were to try to maintain its current dominance of the region -- something that will probably prove impossible -- it would boost our military spending even further.
The bottom line is that the American empire just isn't affordable. Within a decade or so, the U.S. will be forced to be much less preemptive and outward-looking and to engage in scaled-back foreign policy -- even if the foreign-policy Establishment never changes its views or ambitions.
In the meantime, the segment of American society that would like to see advances in health care, education, poverty alleviation, or any other positive economic or social goals will get bad news. The foreseeable future is a lot different from most of the post-World War II era, during which the U.S. added such programs as Medicare and Medicaid while spending literally trillions of dollars on cold and hot wars.
This time, little or no federal money will be available for any of these things until U.S. foreign policy changes. The most likely scenario is that most areas of nonmilitary discretionary spending will be squeezed relentlessly before anything gives in the realm of superpower ambitions.
China – the emerging economic super power and an American creditor – may have to instruct the US to stop living on credit and start living responsibly.
*Great Bust Ahead
*The Empire of Debt
*The Most Feared Book In Washington
*America's Glorious Empire of Debt
Technocrati tags:Great Bust, Economic Depression, Gross Domestic Product , Baby Boomers, Economic Meltdown, American National Debt, Trade Deficit, American Economy, Demographic Wave, Unfunded Liabilities, Budget Deficit, Economic Growth, Clinton Administration, President George W Bush, Stock Market, American Empire, Discretionary Spending